Metro land buys point to less than a dream scenario

Published 7:05 am, Wednesday, March 30, 2011

A view down into the 17-plus acres of property from the UH Daly Street parking lot.

A view down into the 17-plus acres of property from the UH Daly Street parking lot.

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Drawings for the intermodal terminal project, Burnett Plaza, once planned for north of the UH-Downtown business school.

Drawings for the intermodal terminal project, Burnett Plaza, once planned for north of the UH-Downtown business school.

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UH map

UH map

Metro land buys point to less than a dream scenario

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When Metro wrote off about $41 million in design work for its abandoned intermodal terminal project, board members took some solace in knowing at least the property bought for the project remained as an asset.

Calling the plans for Burnett Plaza station “grandiose” and “unachievable,” CEO George Greanias told Finance Committee members Feb. 16 that “land is still land” — in this case worth about $21 million.

However, a look at almost $20.4 million in expenditures on just three of many Metro acquisitions north of the UH-Downtown business school made with the project in mind, points to more than a few liabilities as well.

In this particular case, about 20 acres of land was bought nearly six years ago — virtually all of it highly prone to flooding, much of it still in need of environmental clean up to this day. Each of the three properties was bought “as is, where is,” meaning the transit agency assumed all associated costs.

None of this property was among the assets Greanias spoke of in February, a spokeswoman for the transit agency’s Real Estate Division said Tuesday.

‘The Olajuwon property’

Metro documents show the first of these tracts, 17.3 acres in size, was bought in July 2005 for what eventually cost the transit agency $15 million, completed over two transactions.

Unfortunately, from a taxpayer’s perspective, flooding and environmental issues were not considered in an appraisal done for Metro. Flooding, however, was emphatically noted by the University of Houston in rejected a land swap proposal made by the transit agency.

According to an analysis by Integra Realty Resources — paid for by UH and dated Nov. 30, 2005 — the land, located between North Main Street and White Oak Bayou was worth only $2.6 million.

Basing much of that determination on Harris County records, Integra pointed out that despite the near-downtown location, 12.1 acres of the land was located within the 100-year flood plain, while 4.1 acres fell within the actual bayou floodway. Additionally, Integra said an environmental assessment report was not provided by Metro for review.

In sharp contrast, two weeks later, the transit agency’s own appraisal by Property Analyst, Inc., dated Dec. 15, 2005, and sent to the attention of Metro’s Todd Mason, then-vice president of Real Estate Services, valued the same property at the transit agency’s original purchase price of $15 million.

But there was something of an odd caveat included. In doing so, the report made a point of saying the appraised value of the land was based on the assumption the land is “not negatively affected by the existence of hazardous substances … or detrimental environmental conditions.”

In other words, the impact of having been in the proximity of a large rail yard, a paint spraying warehouse, a mirror manufacturer and a wholesale rubber, plastic and foam producer was not taken into account. Neither was the likelihood of flooding.

The Harris County Appraisal District has valued the property at between $2.4 million in 2002 and $5.6 million in 2010.

Referred to in several Metro documents as the (Hakeem) Olajuwon property, the land was initially bought by the former Rockets star for an estimated $2 million in 1999 from the Union Pacific Railroad as talk of a downtown sports stadium gained momentum. Under contract to Trammell Crow Residential for $10 million just a year later, according to the Houston Business Journal, that deal eventually fell through because of concerns over flooding.

Prior to Metro’s involvement, in February 2005, the tract was contracted for purchase by Wellington Development Company, whose main partner was Wellington Stevens III. The price: $15,008,423 million.

Joint venture

Five months later, Metro — entering into a joint venture agree with Wellington — bought the land, paying $10,062,072 million in 2005 for two-thirds of the investment and $5,047,793 million in 2006 for the remaining one-third.

A clause within the agreement required Metro to buy the second piece of property from Olajuwon between the 24th and 30th month of the partnership, if another buyer could not be found, thereby guaranteeing a sale.

The transit agency chose to act sooner, however. In stressing the need to act quickly, Mason wrote in a July 21, 2005 executive decision document signed by then-President and CEO Frank Wilson: “If we don’t close the deal we will need to go back at a later date and attempt to buy a portion of the property at potentially a much higher price.”

The Metro investment was made in the name of as Wellington Fisher Ltd. The following year, the transit agency paid the balance to H.O. Development Ltd. (Olajuwon). Olajuwon's agent in the transaction was Joni Anderson.

Metro documents show the transit agency currently owns 99.9 percent of the investment with Wellington’s contribution totaling about $15,000. However, as a result of the property being in Wellington’s name, the limited partnership has paid $667,125 in property taxes from 2006 through 2010, local entity records show.

Metro’s audited financial statement from 2009 showed the partnership with Wellington would continue for 50 years, barring bankruptcy or Wellington’s decision to dissolve the relationship.

Properties 2 and 3

The joint venture document, itself, signed by Wilson, also contained an unusual clause that excluded two smaller properties under contract by Anderson from a standard noncompeting agreement, thereby allowing her to “flip” the properties to Metro.

In an e-mail July 20, 2005 to Wilson and then-board Chairman David Wolff, acquired through an Open Records request, Mason said he had talked to John Ballis, Anderson’s husband — who, records show, had been convicted of bank fraud and sentenced to prison in 1992. The news was not good.

Mason — who was also a partner with Metro’s then-exclusive real estate broker, McDade, Smith, Gould, Johnston, Mason + Company — said Ballis reported there would “absolutely not” be an extension on the Olajuwon tract. Not only that, “he also won’t sell the buildings at 1101 Naylor and 1115 Naylor (across the street) which we need for the widening of Main.”

Mason concluded by the time the Naylor properties could be acquired through eminent domain “he (Ballis) will have sold the building to Rice, which equate to an approximately $20 million relocation expense.”

At the time, Rice was looking at the area as a site for a Data Center. Anderson had 1101 Naylor under contract to sell to the university for $3.8 million.

Later, on Oct. 27, 2005, Mason wrote of additional snags in an e-mail to commercial real estate broker David Cook, of Cushman Wakefield:

“When you and John Ballis and I first discussed this deal, I agreed to let John control this property because he wanted to be able to own this building along with the 1101 Naylor building in the event we did not close the purchase of 1101 Naylor.”

He went on to complain that he had received a proposal that included a $105,000 commission to Cushman Wakefield to assign the contract from Anderson to Metro, going on to say the transit agency was “not willing to pay any broker other than McDade Smith ...

“... I reminded you the only reason I stayed out of the commission was so you and John Ballis could control the property for John’s benefit and I did not want to add an additional layer of cost to Metro...”

Documents indicate Rice was persuaded by Metro to find another building with the transit agency paying more than $95,000 to install a communications line from the alternate location in the 11000 block of Main to the university at 6100 Main.

Cushman and Wakefield and Trammell Crow were the brokers for Anderson on the $3.8 million sale of the 1101 Naylor property. The seller’s statement on Sept. 29, 2005, showed they received commissions of $114,750 and $95,625, respectively. Anderson’s commission was $114,750.

Metro bought the 1115 Naylor property Oct 28, 2005 for $1.6 million. The closing statement shows a $48,000 commission to Cushman Wakefield. A fee of $65,500 went to Anderson.

Both buildings on Naylor Street have been torn down with environmental remediation work going forward at Metro’s expense.